Sonida Senior Living Inc (SNDA) 2012 Q3 法說會逐字稿

Good day and welcome to the Capital Senior Living third quarter 2012 earnings release conference call. Today's conference is being recorded.

The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially including but not without limitation to the Company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risk of downturns and economic conditions generally, satisfaction of closing conditions such as those pertaining to licensure of the ability of insurance at commercially reasonable rates, and changes in accounting principles and interpretations, among others and other risks and factors identified from time to time in our reports filed with the Securities and Exchange Commission.

At this time I would like to turn the call over to Mr. Larry Cohen, CEO. Please go ahead, sir.

Thank you. Good morning, and welcome to pitched Capital Senior Living's third quarter 2012 earnings release conference call.

I am very pleased to report continued occupancy growth and strong operating and financial results for the third quarter. Successful execution of our strategic plan is significantly enhancing shareholder value through a focus on operations, marketing, and accretive growth. Our same community occupancy increased 180 basis points from the comparable quarter of the prior year and [80] basis points sequentially, EBITDA margin increased by 20 basis points from the third quarter 2012.

We continue to enhance our geographic concentration by acquiring high quality senior living communities that generate meaningful increases in CFFO, earnings, and owned real estate. So far this year we have acquired 15 communities for a combined purchase price of $148.5 million and we are conducting due diligence on communities that we expect to close by yearend.

As the value leader in providing quality seniors housing and care, at reasonable prices, we are well positioned to make further gains as a substantially all private pay business in an industry that benefits from need driven demand and limited new supply.

On October 24th we announced we completed the acquisition of eight senior living communities for a purchase price of approximately $72.9 million. These communities are located in Texas, Indiana, and Ohio, enhancing the Company's geographic concentration to a resident capacity of 3,683 in Texas, 1,903 in Indiana, and 1,891 in Ohio. These transactions are expected to add CFFO of $0.13 per share, increase earnings by $0.08 per share, and increase annual revenue by more than $20.4 million. Occupancy at these communities average above 95%, with average monthly rents of $3,200.

The eight communities were financed with approximately $50.2 million of nonrecourse debt at a blended interest rate of approximately 4.5%. We are conducting due diligence on additional transactions consisting of high quality senior living communities in regions where we have extensive existing operations. Subject to completion of due diligence and customary closing conditions we expect to acquire these communities in the fourth quarter of 2012.

I would now like to review operating activities in the third quarter. I am pleased to report that in addition to the success we are experiencing with our acquisition program, we are also achieving strong operating results with gains in occupancy and net operating income. Our results differentiate Capital Senior Living as the value leader in providing quality seniors housing, care and services that are personalized and tailored to meet the needs of our individual residents at reasonable prices. We are also benefitting from our geographically focused operating platform, with the bulk of our regions enjoying better economies and lower levels of unemployment than national averages.

We believe we are different from other companies in our peer group with our sole focus on substantially all private pay senior living capitalizing on our competitive strength in operating communities in geographically concentrated regions with larger Company economies of scale and proprietary systems in a highly fragmented industry that are yielding solid operating results.

Our communities under management, same community revenue in the third quarter 2012 increased 3.8% versus the third quarter 2011, excluding one community that has a recent conversion. Same community expenses increased 2.5%, and net income increased 5.8% from the third quarter of the prior year.

Same community occupancies were 180 basis points higher than the third quarter 2011 and 80 basis points higher than second quarter 2012. Same community occupancy over the past year reflected occupancy gains in independent living exceeding those in higher levels of care, resulting in average monthly rents 1.7% higher than third quarter 2011.

Sequentially same community occupancy in both independent living and assisted living gained 80 basis points from the second quarter 2012 to the third quarter 2012, and third quarter 2012 same community average rents were 80 basis points higher than last quarter. I am pleased to report that since the first quarter of 2010 Capital Senior Living same community occupancies have increased 450 basis points and average monthly rates have increased 8.5%.

Our second quarter operating results compare favorably to NIC MAP top 100 [MSA] data, which report for the industry same community third quarter 2012 occupancy growth of 55 basis points year-over-year and 16 basis points from the second quarter of 2012. NIC MAP reported trailing 12-month construction starts as a percent of supply of only 1.7% and new absorption to supply was 1.8%. These statistics are favorable with absorption exceeding inventory now for the past 10 consecutive quarters.

The number of our consolidated communities increased from 78 in the third quarter 2011 to 88 in the third quarter 2012. Financial occupancy of the consolidated portfolio averaged 86.1% in the third quarter 2012, 140 basis points higher than second quarter 2011, and 30 basis points higher than the second quarter of 2012. Average monthly rent in the third quarter of 2012 increased 2.1% over third quarter 2011 to $2,984 per occupied unit.

Occupancies and rates continue to trend positively, and I'm optimistic that industry fundamentals will continue to improve this quarter. We are benefitting from a recovery in existing home sales, increasing home prices, improving consumer sentiment, and very limited new supply. We experienced outstanding occupancy gains in September and have a strong start to the fourth quarter with an increase of more than 45 occupied units in October.

Our positive results demonstrate that our team with its disciplined focus and attention to detail is exceptionally executing our operating strategy and confirms that Capital Senior Living is different from other senior living providers. Successful senior living operations require well located communities with the right onsite team, supported by strong regional corporate resources and systems. We are fortunate to continue to recruit many of the best operations and sales and marketing professionals in the senior living industry.

Once again, I thank our dedicated onsite regional and corporate team, as well as the members of our Board of Directors for their commitment, passion, focus, and accomplishments in serving our residents so well and contributing to our positive results.

Now I would like to discuss Capital's growth initiatives. We are very excited about our growth, as seniors' housing is a need driven product with very limited new supply. Demographic demand growth is driven by an aging population. These favorable demographic and supply demand trends should allow us to continue occupancy and rate growth.

We have improved our operations by implementing software programs for care plans and level of care charges, and we are enhancing our internet marketing and social media initiatives. We are also benefitting from our investments in cash flow enhancing renovations, refurbishments, and conversions of units to higher levels of care. These initiatives combined with the operating leverage in our prudent refinance business are expected to increase our revenues, margins, and cash flow.

The 3% in average monthly rent generates more than $8.5 million of incremental revenue. Each 1% improvement in occupancy is expected to generate $3 million of revenue, $2 million of EBITDAR, and $0.05 per share of CFFO.

We completed conversions of 155 consolidated units to higher levels of care in 2011, and we are in the process of completing conversions of an additional 73 units from independent living to assisted living. When stabilized these conversions are expected to add more than $6 million of incremental revenue and approximately $3.6 million of EBITDAR. Additional conversion opportunities are currently under review.

As we execute our strategic business plans we are enhancing our geographic concentration with expanded care to residents, maximizing our competitive strengths, and lowering our cost of capital. Our strategy is focused on engendering attractive returns, enhancing free cash flow, and maximizing shareholder value.

The $148.5 million of acquisitions that we have completed since the beginning of 2012 are expected to generate CFFO of $0.27 per share and a 17% initial cash-on-cash return on invested capital. These returns are calculated before we factor in operating improvements that have already been recognized, as well as other synergies.

As you can see, our ability to complete off market acquisitions of strategically located high quality communities in the current favorable interest rate environment is yielding outstanding returns. Our acquisition pipeline remains robust and we are conducting due diligence on additional transactions consisting of high quality senior living communities in regions with extensive existing operations.

Subject to completion of due diligence and other customary closing conditions we expect to acquire additional communities in the fourth quarter of 2012, as well as the first quarter of 2013. When completed these acquisitions are expected to be accretive to CFFO and earnings and lead to further improvement in our EBITDAR margin and operating metrics.

The improvement in our EBITDAR margin reflects the benefit we derive from executing on a strategy of acquiring communities in geographically concentrated regions. We are able to leverage our geographically concentrated operating platform and benefit from economies of scale, our group purchasing program, our proprietary proactive expense management systems, our risk management and insurance programs, as well as our focused marketing plans to integrate acquisitions in a highly accretive manner.

Our success in acquiring high quality senior living communities on attractive terms validates Capital Senior Living's capital, our competitive advantage as an owner, operator with a geographic focus able to successfully assimilate acquisitions with minimal incremental costs.

And our liquidity and balance sheet are solid, allowing us to have the capacity to comfortably fund our working capital, maintain our communities, retain prudent reserves, and have the equity to fund additional acquisitions. We believe that our cash balances, free cash flow, and opportunities for additional supplemental financings on existing portfolio will allow us to acquire another $150 million of communities.

I am optimistic about our future, and I am confident in our team's ability to continue our successful execution of a well-conceived strategy plan. We expect continued significant growth in CFFO, earnings, and owned real estate that will lead to a meaningful increase in shareholder value. Our fundamentals are solid, and I am excited about the Company's prospects as we benefit from need driven demand growth with limited new supply.

I would now like to introduce Ralph Beattie, our Chief Financial Officer, to review the Company's financial results for the third quarter of 2012.

Thanks, Larry, and good morning. I hope everyone has had a chance to see the press release, it was distributed last night. In the next few minutes I'm going to review and expand upon highlights of our financial results for the third quarter and first nine months of 2012. A copy of the press release is available on our Corporate website at www.capitalsenior.com, and if you'd like to receive future press releases by e-mail there's a place on our website for you to you provide your e-mail address.

For the third quarter of 2012 the Company reported revenue of $78 million compared to revenue of $68.2 million for the third quarter of 2011, an increase of $9.8 million or 14.4%. We consolidated 88 communities on our income statement this quarter versus 78 in the third quarter of the prior year.

Financial occupancy at the consolidated portfolio averaged 86.1% in the third quarter of 2012 compared to 85.8% in the second quarter of 2012, and a sequential improvement of 30 basis points. Financial occupancy increased 140 basis points compared to the third quarter of the prior year.

Average monthly rent was $2,984 per occupied unit in the third quarter of 2012, an increase of $60 per occupied unit, 2.1% higher than the third quarter of 2011. On a same community basis occupancies were 180 basis points higher than the third quarter of 2011 and increased 80 basis points sequentially. Same community average rents were 1.7% higher than the third quarter of 2011, reflecting the fact that independent living occupancies increased at a much faster rate than occupancies in higher levels of care.

On a same community basis revenues increased 3.8% versus the third quarter of 2011, expenses increased 2.5%, and net income grew 5.8%. As a percentage of resident and healthcare revenue operating expenses were 61.1% in the third quarter of 2012 compared to 61.2% in the third quarter of 2011, an improvement of 10 basis points.

Margins in the third quarter are generally lower than the second due to one additional day's expenses and higher utility costs due to the summer heat. The utility shaved 80 basis points off the margins compared to the second quarter.

Excluding transaction costs associated with the acquisition process general and administrative expenses as a percentage of revenues under management were 3.8% in the third quarter of 2012, transaction costs were approximately $200,000 in the quarter.

Adjusted EBITDAR for the third quarter of 2012 was approximately $27.4 million, and adjusted EBITDAR margin was 35.1% for the period. EBITDAR increased $3.6 million and margin improved 20 basis points from the third quarter of 2011.

Adjusted net income for the third quarter of 2012 was $1.8 million or $0.07 per share, excluding the nonrecurring and noneconomic items reconciled in the press release. This was an increase of $0.2 million or $0.01 per share from the third quarter of 2011.

Adjusted CFFO was $8.9 million or $0.33 per share in the third quarter of 2012 compared to $5.9 million or $0.22 per share in the third quarter of 2011, an increase of nearly 52%.

Moving to the first nine months results the Company reported revenue of $227.3 million, an increase of $34.9 million or 18.1% from the first nine months of 2011. Adjusted EBITDAR was $80.8 million for the first nine months of 2012, an increase of $13.9 million or 20.8%. Adjusted net income was $5.8 million or $0.21 per share in the first nine months of 2012 versus $4.8 million or $0.18 per share in the first nine months of 2011. CFFO was $23.9 million, $0.87 per share in the first nine months of 2012, an increase of $6.9 million, that's an increase of $0.24 per share from the first nine months of 2011.

The Company ended the quarter with $57.5 million of cash and cash equivalents, including restricted cash. As of September 30th, 2012 the Company financed its 38 owned communities with mortgages totaling $287.6 million at fixed interest rates averaging 5.5%, with none of the Company's maturities maturing before July of 2015.

With the acquisition of eight communities in October the Company added $50.2 million of mortgage debt at a blended average interest rate of approximately 4.5%, and invested $22.7 million of cash as equity.

Our EBITDA to interest coverage was 2.8 times in the third quarter, and net debt to third quarter annualized EBITDA was 4.5 times.

Capital expenditures for the quarter were approximately $3.4 million, representing $2.1 million of investment spending and $1.3 million of recurring CapEx. If annualized, the Company spent approximately $500 per unit on recurring CapEx in the quarter.

We would now like to open the call to questions.

(Operator Instructions)

We'll take our first question from Drew Jones with Stephens, Inc.

Good morning, guys.

Good morning, Drew.

Just a couple of questions here. I guess, first, could you talk a little bit about occupancy trends and how October has looked so far?

Yes, Drew, October looked very good. It's interesting that we had a very, obviously, positive third quarter, what was really encouraging was it improved every month in the quarter. September was perhaps a record month for our Company, that was really very strong. Some of that occupancy comes in at the end of the month, so it doesn't even reflect itself in the quarterly financial results. In addition to a very strong September we gained about, it looks like we gained about at least 45 units of additional occupancy in October.

So we're very encouraged that we will be able to have a very strong fourth quarter. Typically when we end a quarter as strongly as we did in the third quarter it leads to a very strong sequential quarter and October continues momentum with that. So we're seeing acceleration in fundamentals in the business. I kind of commented, I think there are a lot of things moving in our favor today. Obviously, improving housing market, existing home sale prices are increasing, there's pent-up demand, we have an aging demographic, and just very limited supply.

And as you get down to more granularly at a community level, as we start to achieve closer to 90% occupancies there are fewer options available to prospects. You come into a community and you only have a few units available, you have to make a decision much sooner. So I think that also helps accelerate.

So, as I said, we feel very good about the business, feel that a lot is aligning very favorably for us, and fortunately we have fabulous people onsite that are executing and really being able to convert the increased traffic into higher occupancies.

Great. And you guys have talked a little bit about pipeline so far, but as you look at what's in your pipe can you talk about whether or not you think any of it is at risk from being swept out from underneath you by the REIT? And just give us a little refresher on how you compete with REITs in pricing?

Sure. I, you know, look, we have tremendous respect for the REITs, we're very close with a lot of the big REITs, we're partners with REITs. I think that we are in a different market than the REITs are for acquisitions.

If you look at the eight properties that we acquired or the 15 properties this year for almost $150 million, you know, that's averaging $10 million a property. Our typical transaction is probably about $20 million. It doesn't really reach the level for REITs to have an interest.

In fact, what's interesting is when we compete we think we have a number of advantages. Number one, as an owner, operator we don't have to hire a third-party manager who would charge a 5% management fee. Our strategy of focusing on buying properties in the geographies where we operate is done strategically because we already have an infrastructure of regional operations and marketing support to be able to fold those communities into our systems without incremental costs.

And so if you look at the differential on a cap rate basis we think that when we buy a property the actual cash flow that's being generated to Capital Senior Living on a cap rate basis is probably 130 basis points higher than what a REIT would be paying if it were paying a 5% management fee.

And we can buy properties, again, for $20 million, finance it with Fannie Mae or Freddie Mac today in the low 4% range, 70% financing, and it will generate $0.03 or $0.04 a share of cash flow from operations. So it's significantly accretive to us, and we just don't see competition from the REITs.

We've been very fortunate to have the resources to be very active in off market transactions with principals. We have a lot of repeats. We just closed on six properties that we acquired from a seller, which we dealt with previously. We're looking forward to additional acquisitions with the same seller. Great buildings, all refurbished, great operations. We're very excited about the footprint, very well.

So we think that we continue to have the benefit of a very strong pipeline at attractive pricing, and as helpful as the REITs have been, as it relates to the larger transactions and the compression of cap rates and the low cost of capital, we're still able to buy things at the prices -- I mean our purchase prices have not changed all year on metrics of per unit, acquisitions, cap rate, et cetera. So we think we have a very important niche. And not only do we not see the REITs, we don't really see any other operators compete with us.

So we really are very fortunate to be highly selective. We're probably only acquiring maybe 30% of buildings we're making offers on, so the pipeline is far more quality wise, net wise that we would look to buy, but we're able to be very disciplined in our approach and very selective in the acquisitions, and are very pleased with the high quality and the performance of the transactions that we've completed.

Okay, and a last one -- but just post this last round of acquisitions, can you give us an update on what the proforma balance sheet looks like? And what is the capacity left for deals in terms of supplemental financing?

Drew, if you take a look at our balance sheet at the end of September, if you take a look at the unrestricted cash and, of course, the restricted cash is not available for investment, but our unrestricted cash at the end of the September was $48.3 million. We did use about $22 million of that to acquire the eight communities in October. We're also generating $7 million to $8 million of free cash flow each quarter.

So you can kind of do your own math and show that we still have after the eight community acquisitions something in the mid $20 millions of available cash flow, plus what we're generating in the fourth quarter and other quarters. And with 30% equity required for acquisitions you can see that we still have a very healthy amount of dry powder, and we're always adding to that each day as we're generating free cash flow from the operations.

And we do have the ability of supplemental financings. We're not sure whether or not we'll need to use it, it's more opportunistic as we look at the opportunities. You may recall that we borrowed $25 million this year from Freddie Mac and Fannie Mae by taking supplemental financings on existing properties.

Obviously, we like to maintain debt levels where they are if we could, so we'll be opportunistic on the financings, it's there if we want to use it but we feel that we have ample reserves and cash flow being generated that can very well fund the pipeline that we hope to acquire the balance of this year and into 2013.

Appreciate it, guys.

Thank you.

Thanks, Drew.

We'll take our next question from [Darren Lerrick] with Deutsche Bank.

Hi, good morning. This is Dana Vartabedian in for Darren. Just had a question on cost growth and I guess how you're thinking about it? And is there any specific, anything specific that may be an inflationary driver given some of the conversion projects you're doing? And, if so, could that alter things in your cost growth?

Hi, Dana. It's Larry Cohen. On the conversions it's very interesting, we have proactive expense management systems that have been tested now through different cycles over 20 years, and they've really been very, very effective and very resilient in managing our expenses month to month by our occupancies.

Clearly, as we do conversions of units from independent to assisted and memory care, we'll have more staffing for caregivers but we get the benefit of spreading our costs over a larger base of operations. As I mentioned in my comments, our average incremental margin on revenue being generated by converted units is actually 60%, so it's actually expanding our margins.

Our food costs continue, in fact, in September our average monthly food cost per meal was lower than it was in September of 2011. Our food cost increase over the last five years averaged about 1%. We have long-term food contracts with U.S. Foods through our GPO that really limits increases in our food cost. One of the strategies on our focus on geographic concentrations, we're able to reduce delivery costs by having more food delivered to the regions in which we operate.

In our deregulated states we have recently signed new electricity contracts that lock-in our rates at I think $0.05 for the next three or four years. So we feel that we have very good controls of cost this quarter, same store cost increased I think 2.5%, and that's with the higher utilities that you typically have in the summertime, which as Ralph mentioned was about 80 basis points of margin.

So as we plan for 2013, we're going through the budgeting process now, we think that we'll be able to maintain the discipline and the control on costs, both for our existing properties or acquisitions, as well as on the converted units.

Okay, great. Thanks. And then sorry if I missed it, but could you update us on conversions and what your pipeline looks like today?

Yes, as I mentioned, we have -- on a consolidated basis we have converted 73 units to higher levels of care. We actually have another 40 units this year that we're converting in our joint ventures on the Ohio properties. The demand for assisted living has been so great, we continually are increasing the number of assisted living units because we just continue to sell out on the existing inventory.

We have a number of properties that we would like to have conversions done. We have I guess the mixed fortune of high occupancy, so we don't have vacancies to convert units. So we have approvals for conversions in properties in locations where we just don't have the vacant units to do the conversions, so we'll delay that.

So as we go into 2013 we continually monitor our opportunities for conversions and would expect that where we can we will continue to add more layers, more levels of care to be able to accommodate our needs of our residents, who are aging in place.

Okay, great. Thanks a lot.

Thank you.

(Operator Instructions)

And we'll take our next question from Daniel Bernstein with Stifel Nicolaus.

Hey, good morning.

Good morning, Dan.

Hi. Super stats coming out from the quarter. I just wanted to verify what I heard earlier in the call, the same store rate growth sequentially, was that 80 bps, is that what you --

Dan, yes, it was. It's very interesting, and I think that's very important, you know, as we look at the mix of our product types, particularly to the acquisitions, the conversions, clearly, we're getting more balanced between independent and assisted living. We saw a much greater gain on an annual basis in independent living, so the average rent growth was about 1.7% same store, but fourth quarter, I mean that's annualized 3.2%.

So we are starting to see some better pricing on both independent living and assisted living in this quarter when you saw we had 80 basis points growth same store in occupancy in both independent living and assisted living, with 80 basis points increase in rates. In fact, if you go year-over-year assisted living is up 3.3%, so we're starting to see some great growth.

And in 2013, while we can't provide guidance, we are starting to budget some of the benefits of the software programing we implemented for care plans to start to generate increased revenue as we look at the billing for care plans under the software program that we rolled out in 2011, 2012. So, hopefully, we'll get a little better, you know, pickup from there, as well.

But, again, just looking at the last quarter it's very encouraging to see that we are able to increase rents above industry standards as NIC MAP and the other companies have reported. And we hope to be able to continue that, obviously, as occupancies improve and, hopefully, as we have a further recovery in the housing and in the economy maybe we'll get some better rate growth in the out years.

And there was -- just to continue the conversation on rate growth, we heard from some of your peers that they're getting rate growth on their annual increases to residents, but then some residents are converting down to smaller units or lower price units within a facility. Are you seeing a lot of that? And how much influence do you think that's having in your facilities?

I don't think we're seeing that because we are the value provider. I can't stress strongly enough our strategy is different than the other public companies. If you look at the average rents, summarize on the transaction, they have $7,500/month rents, and [inaudible] is over $4,000. And [Brookdale], obviously, with their ancillaries are significantly higher.

Well, our average rents are $2,900 a month and which really is driving the success over the last eight, nine quarters of independent living growth, it's the price point. Our average monthly rent this quarter for independent living nationwide is $2,420. That's for, you know, we have studio, one and two bedrooms, and our assisted living averages are $3,640.

So as a strategy of being a value leader in our markets it's affordable. And we're not dealing with the risks you have of high rent districts where people now because they have lost money in the market their house is no longer what it was worth, maybe they're living out, you know, kind of living out their life expectancy and their resources are starting to diminish, they have to become a little more prudent with the kids. We're not seeing that, and I think that's, again, a factor of the differentiation of Capital Senior Living of focusing on the value sector as opposed to the affluent sector.

And kind of think about the business as more of a needs driven business today than it was a couple of years ago, you know, but clearly I think the existing home sales, stabilization of the existing home sales market is starting to impact occupancy in the industry at least on the fringe. And is that the right assessment? I mean more of a supply, demand, needs driven demographic influence, but if existing home sales are doing well it's an extra 10 basis points a quarter to occupancy, how should I be thinking about the influence of existing home sales, particularly for [inaudible]?

I think you're seeing it exactly right. I mean we see it this quarter with 80 basis points sequential growth, that's as high as we've seen in many, many years. NIC MAP said occupancies in the third quarter is at a four-year high in the top 100 markets. And I think that's, you know, I think we have three factors that are impacting the business very favorably.

We have growing population, growing demand just on demographic. We have pent-up demand for that senior that didn't move in in 2007, '08, '09 because they were concerned that the house had dropped in value, they didn't want to give their house away, maybe it was underwater vis-a-vis the mortgage and they would wait. Well, they really didn't see the recovery and they are much, you know, they're frailer, they're more chronic, they're older, and we saw that and interesting phenomena on seasonality, five, six years ago the fourth quarter was kind of a challenge in this industry. You had bad weather and you had holidays, you didn't have the traffic. It changed, changed over the last couple of years.

And we saw it really manifest itself in Thanksgiving 2010 when the kids came home and they got nervous when they saw how mom aged and became really was no longer able to live safely at home. And we had such a pickup in December in '11 and '10 and I'm hopeful we'll have it again this year, it's that changed dynamic. And then on top of that you do have somewhat of a recovery in the home business. I mean you look at the stats, the existing inventory of homes for sale is really diminishing. So, and I think the last part is consumer confidence that the reason that the children can move their parents in in a three-day window, they now are confident they can sell the house, and they no longer are concerned about what their neighbor received in 2006.

So I do think the increment we're seeing is there's steady demand from need. We have very limited supply, and then the acceleration on the occupancy increases is coming from the improvement or the recovery in the housing market.

Okay, and then I guess one last quick question, just so I understand it. So normally I would think about maybe like November, December being a little bit weaker than September or October, but you're saying that you think occupancy trends may continue to be pretty good during the fourth quarter? They've been like that since 2010?

We expect gains this quarter -- let me tell you, we had such a good September and modest move-ins coming in towards the end of the month, that we don't have obviously financials yet for October, but I'm very optimistic on the financial occupancy gains just on the very strong September and a very good October. So, and as I said, now for the last two holiday seasons we actually saw a big pickup in December.

So we're optimistic that we'll have a good fourth quarter and what's interesting is a good fourth quarter typically leads to a first quarter improvement. The weather patterns have changed where -- well, maybe not this year with Sandy and the Northeast yesterday, the Northeast, but it has kind of -- we've seen the harsher weather coming in February and March the last few years, than we typically see in November, December, but I do think that, as I said, we are optimistic. I will tell you that our reports weekly from our communities, our calls, our monthly meetings are all very positive as far as the outlook, as well as the outlook for where we're going to end this year. so we think that we're seeing a lot of positive drivers out there.

Okay, and I guess that's all for me, and I hope you did well with Hurricane Sandy up in New York, so.

Well, thanks, Dan, I appreciate it. We lost some power but stayed dry. I also want to mention that we're fortunate that we had two communities impacted by Sandy. We had our community in Trumbull, Connecticut, which lost power for about a day and staff did a great job, and some of the staff had flooding in their homes. So, you know, it's great to see how people are focused in taking care of our residents.

We did lose power in Summit. I'm pleased to report we had no property damage anywhere in the country. We're still without power in Summit. We're now on second generator, which is a larger generator to -- and, again, the staff there has been fabulous. I mean we've been delivering meals to the residents, having activities on each floor. I get e-mails from an ED who is checking thermostats at three a.m.

And, again, I really want to give a shout out and really a strong acknowledgement and appreciation to our staff who did such a great job caring for our residents, particularly in these difficult times.

That's all for me, and thanks for taking my questions.

Thanks.

(Operator Instructions)

We'll take our next question from Todd Cohen with MTC Advisors.

Good morning, guys. Hey, Larry, not to focus on natural disasters, but they do happen, unfortunately, but I was curious as to what you've seen over the years when a natural disaster does occur? Does it stimulate, might it stimulate demand by the children out there that become more concerned about their parents in their homes as they're independent or it's really -- you really don't see anything?

No, Todd, we definitely do, that's a great question. It's interesting that when you have -- and we saw this really starting a couple of years ago with a very harsh winter in February and March, followed with a fabulous kind of April to June period because all of a sudden the kids got nervous that mom could no longer live safely at home. And we saw it in Texas the week of the Super Bowl in 2011 when you had the ice storms, and I see it personally with my own family members who have lost power, you had snow yesterday, you have very frigid temperatures. It's really dangerous for a lot of the seniors to continue to live at home in these trying times.

So it's hard to gauge the increment, but clearly once things settle down after natural disasters occur it's a rude awakening, particularly to the adult children that they really have to think about where to put -- our business is a need driven business and it's an event driven business. Typically it could be a fall, it could be failing to take medication, it could be seniors just having more frailty, but clearly along those lines is after a disaster the realization that it's really not safe for a lot of these, of the seniors to live home alone, particularly when you start to see the affects of some of these storms.

Right. Thanks.

Thank you.

Thanks, Todd.

(Operator Instructions)

And we have no further questions at this time.

Well, again, we thank everybody for your participation. If you have any further questions feel free to contact Ralph or myself, and this will be put on the website, as well, so you can listen to the webcast again. But, again, thank you very much for your support and your interest. Have a good day.

This does conclude today's conference call. Thank you, all, for your participation.